Correlation Between Stanley Black and American Express

Can any of the company-specific risk be diversified away by investing in both Stanley Black and American Express at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Stanley Black and American Express into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Stanley Black Decker and American Express, you can compare the effects of market volatilities on Stanley Black and American Express and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Stanley Black with a short position of American Express. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stanley Black and American Express.

Diversification Opportunities for Stanley Black and American Express

0.0

Correlation Coefficient

Stanley Black  American Express

Pay attention - limited upside

The 3 months correlation between Stanley and American is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Stanley Black Decker and American Express in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Express and Stanley Black is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Stanley Black Decker are associated (or correlated) with American Express. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Express has no effect on the direction of Stanley Black i.e., Stanley Black and American Express go up and down completely randomly.

Pair Corralation between Stanley Black and American Express

Considering the 90-day investment horizon Stanley Black is expected to generate 3.51 times less return on investment than American Express. In addition to that, Stanley Black is 1.34 times more volatile than American Express. It trades about 0.03 of its total potential returns per unit of risk. American Express is currently generating about 0.13 per unit of volatility. If you would invest  15,713  in American Express on January 25, 2024 and sell it today you would earn a total of  8,183  from holding American Express or generate 52.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Stanley Black Decker  vs.  American Express

Stanley Black Decker

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Stanley Black Decker has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Stanley Black is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

American Express

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Express are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, American Express reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Stanley Black and American Express

The main advantage of trading using opposite Stanley Black and American Express positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stanley Black position performs unexpectedly, American Express can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in American Express will offset losses from the drop in American Express' long position.

The idea behind Stanley Black Decker and American Express pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.